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CHARITABLE TRUSTS
• The exemption under section 11 is allowed to
the following:
(1)A charitable trusts
(2)A religious trust,
However the word “trust “ as used in the
context of section 11 to13 of the Income Tax
Act, includes in addition to the ‘trust’ any
other legal obligations
Legal obligations
• Property of the estate of deceased held by the
executors
• Muslims Wakfs
• Religious Endowments under the Hindu Law
• Institutions registered under the Societies
Registration Act, 1860
• Bar councils, Chamber of commerce,
endowments, monasteries, maths etc.
Income Tax Act, 1961, Section 2(15)
The expression “charitable purpose” has been
defined under Section 2(15) of the Act to include:
• (a) relief of the poor,
• (b) education,
• (c) medical relief,
• (d) preservation of environment (including water
sheds, forests and wild life)
• (e) preservation of monuments or places or
objects of artistic or historic interest
• (f) Yoga and any other object of public utility
C.I.T. v. Tollygunge Club [1977] 107 ITR 776 (SC)
To get exemption u/s. 11 of the Income Tax Act, the Trust Deed should
specifically contain the following provisions:
• (a) the benefits of the trust are open to all , irrespective of caste, creed,
religion and sex
• (b) no activities of the trust will be carried out outside India
• (c) any amendment to the Trust Deed will be carried out only with the
approval of the competent authority
• (d) the trust is irrevocable
• (e) in the event of the trust not being able to function in fulfillment of its
objects the trustee shall, after discharging all liabilities transfer the
entire assets of the trust to any other public charitable institution
having similar objects
• (f) The income and the funds will be solely utilized towards the objects
• (g) The trust will not carry on any activity with the intention of earning
profit.
• All these should be clearly laid out in the Trust Deed.
• It is pertinent to note that benefit under
section 11 of the Income tax Act is not
available suo moto to all public trusts
satisfying aforementioned criteria but, in
order to avail the benefits the trust must be
registered with the Principal Commissioner or
Commissioner of Income tax under Section
12AA.
• Charitable purposes along with commercial
activities
Sometime a trust that was form for charitable
purpose also carries on commercial activities.
In that case a question may arise whether
such a trust entitled to get the benefit of tax
exemption under section 11 of the Income tax
Act?
• East India Industries (Madras) Private Ltd.v.C.I.T.[1967]65ITR611(SC)
• In this case the trust was established for various objects, one of
which was to manufacture, buy, sell and distribute pharmaceutical,
medicinal, chemical and other preparations and other articles.
• The objects included several charitable and religious purposes.
• One of the clauses of the trust deed provided that the objects shall
be independent of each other and the trustee shall have power to
apply the whole or any part of the trust property or fund whether
capital or income, in carrying out all or any of such objects of the
trust as the trustees may deem fit.
• It was held by the Supreme Court that as the trustees could under
the deed validity spend the entire income of the trust in carrying on
business of manufacture, sale and distribution of medicinal and
other preparations, which act was neither charitable nor religious,
the trust property was not held for religious or charitable purposes
• within the meaning of the I.T.
• C.I.T. v. Andhra Chamber of Commerce
[1965]55ITR 722(SC)
• The Supreme Court that if the primary or
dominant purpose of a trust is charitable,
another object which by itself may not be
charitable but which is merely ancillary or
incidental to the primary or dominant purpose
would not prevent the trust from being a valid
charity. The primary purpose of the Chamber in
this case was to promote and protect trade,
commerce and industries and to watch over and
protect the general commercial interests of India
or any part thereof.
Prior to Assessment Year 2009-10, business
income of a charitable trust or institution was
also eligible for exemption subject to
conditions that such business should be
incidental to the attainment of its objects, and
that separate books of account are
maintained for such business.
With effect from 01.04.2009 (i.e., from assessment year
2009-10 onwards), however, the “advancement of any
other object of general public utility” shall not qualify as a
“charitable purpose” if the same involves the carrying on of
any activity in the nature of trade, commerce or business,
or rendering of any service in relation to any trade,
commerce or business, for a consideration. This new
restriction applies irrespective of the nature of use or
application of the income arising from such activity.
However, the rigour of this amendment has been reduced
somewhat by a subsequent amendment brought in by the
Finance Act, 2010 (with retrospective effect from 1-4-2009)
to the effect that the said restriction shall not apply if the
aggregate value of receipts from such activity during the
given financial year does not exceed Rs. 25,00,000.
• Amendment made by the Finance Act, 2015
w.e.f. AY 2016-17
Trust / institution covered under advancement
of any other object of general public utility
can do commercial activities upto 20% of its
total receipts as against Rs. 25,00,000 allowed
earlier[ proviso to section 2(15)]
Charitable purpose- “Education”
Income Tax Act, 1961
• As per section 10(23C)(vi), any income
received by any University or other
educational institution existing solely for
educational purposes not for purpose of profit
whose aggregate annual gross receipts exceed
Rs. 1,00,00,000 is exempt from tax.
Will an education institution be entitled for an
exemption u/s.11 of the Income Tax Act. 1961,
if it generates a surplus in its account after
meeting all expenses toward imparting
education?
• In the case of DIT(E) v. Lala Lajpatrai Memorial Trust, (2016) 383
ITR 345(Bom) Bombay tribunal held that if the pre-dominant
object of the educational trust is to carry out a charitable purpose
and not to earn profit, the purpose would not lose its charitable
character merely because the some profit arises from the activity.
Therefore exemption cannot be denied under section 11 Income
tax Act, to an educational trust if it let out its auditorium for
educational activities.